Vince McMahon Says Lack of Audience Impacted Ratings, Saudi Event Doubtful, Free Tier Praised, More

WWE held their conference call discussing today’s Q2 financial results release, which featured Vince McMahon discussing the drop in ratings, the impact of the free tier on the WWE Network numbers and more. Highlights are below:

– Michael Weitz welcomes us to the show, breaking down the basic numbers.

* Vince McMahon joins the call and says that they had strong results in a difficult environment and took advantage of strong engagement on their digital platforms, setting WrestleMania viewership records up 20% from last year. He mentions the free viewership launch of the Network and achieved a 6% increase in quarterly Network viewership for the first time since 2018.

* Frank Riddick takes over and highlights the success of shows like Undertaker: The Last Ride, Total Bellas and more. He breaks down the rest of the numbers and talks about how they moved to the WWE Performance Center, saying that the drop in Raw and Smackdown viewers (down 19% and 15%) reflects the importance to live viewers and other things. He says Raw ranked as the highest and third-highest shows on USA and highlights the rise of views on digital platforms. He estimates they would have been about 25% higher if they didn’t geoblock due to certain agreements. WrestleMania set viewership records and he says they capitalized on that to launch the free version of the network. Revenue had a moderate increase because revenue increase from Raw and Smackdown were offset by the timing of WWE Super Showdown. He says they made progress localizing pricing and that they still believe in an alternative method but don’t have a timing update. As for live revenue, it was heavily down due to COVID and they are not certain when they will be able to return. Consumer Product Revenue was only slightly down thanks to a big increase in eCommerce, nearly offsetting the lack of live event merchandise.

* Discussing COVID-19 actions and the business outlook, Riddick discusses how they’ve offset the lose of ticket and merchandise sales by reducing operating expenses and introducing a new model for producing content, and implemented a set of short-term cost reductions and cash flow improvement actions. They continue to adapt to the enviroment but note that the potential impact of COVID-19 on their business, which could be material, remains uncertain. They are refraining from reinstating guidance at this time.

* They open it up for questions:

– Vince is asked about the soft ratings as of late, with the understanding that COVID has had an effect. Vince says that more than any other sport, the audience is part of the program and audience interaction is essential. He says they are integral to the ratings but notwithstanding that, he thinks they can have more compelling characters and storylines, new characters, and content that focuses on personalities and stories outside the ring.

– Riddick is asked if they can expect similar cost savings in the third quarter. Riddick says they continue to be well-disciplined going forward but that they will likely see some increase in costs. He says they’re being cautious about adding costs, particularly in live events, and have learned a lot about how to operate during COVID. They’re looking at potential investments mindful of the long term and reiterates they they don’t have a long-term guidance yet.

– Asked about the Network and investing in new product, new content and international offerings in the event they retain their product, Vince directs the question to JR Donlan. Donlan says that they’re still investing in content and highlights their original content as well as price and UI localization. He says they’re moving ahead in advertising but are still testing the user experience on that.

– Asked about whether a Saudi event will happen this year, Vince says no decision has been made yet but based on everything he doubts it.

– A question is asked about the initial feedback for the Network’s free tier launch and when advertising may come, as well as alternative pricing. Donlan says as far as pricing, it’s been done in a couple of markets already. Regarding the free tier launch and advertising, he says they’ve built the advertising part and are evaluating, noting that initial results of the free tier are promising.

– Asked if this is the first quarter that the Indian pricing increase took effect, it was confirmed though it did not have an effect in the year-to-year period change in content. Regarding stock buybacks in 2019, the approach and analysis didn’t change but they’ve generated very strong cash flow. Final decisions on that haven’t been made but things have been going well enough that they’ve looked into it.

– Asked why they ended with more paid Network subs than they averaged, it was acknowledged that launching the free tier affected that. In addition, they credit the affect of samplings on ESPN and FOX Sports 1, as well as the new original content and industry trends like a general rise in industry viewing.

– Asked why social media followers fell for the first time, that is because they’re geo-blocking some content as part of a deal with Sony and that affected things. Viewership is up for paid and free subscribers alike. Vince says they didn’t hurt themselves by going to free launch as opposed to the trial period.

– Asked if their negotiating leverage for licensing Network content has been hit, they say that they will continue to invest in the Network ad create compelling content to make it attractive to potential partners. In addition, the rise of streaming services like Disney+ and Peacock will make WWE content attractive to some of those platforms. The rise in streaming will make their content valuable to the winners in the streaming wars.

– Asked about the ratings issues again, Vince is asked why AEW and WWE bounced back better than Raw and Smackdown, whether they abandoned their plan to get over new talent in firing Paul Heyman, and whether Triple H could be used on Raw or Smackdown in an elevated role. He says it’s because they’re newer than Raw and Smackdown and that they still have to build characters. As far as Triple H helping out on the main roster, he says it happens and it’s all hands on deck. He says Heyman did a great job in terms of creativity but basically deflects.

– Asked about the new CFO, it is said she will have a broad CFO role including strategy.

– Another question about ratings and how long it traditionally took to rebuild viewers after ratings softness, and what the timing is to recapture them. Vince says it will take months and the key is to be in front of an audience. That adds the “third person in the ring” and they can shoot to the audience.

– Asked about core content rights being down sequentially and whether they should expect that to be the trend going forward, it is acknowledged that smaller deals internationally are being affected by COVID and that’s being seen all over the place. Riddick says there are no major renewals up and there should be no changes there.

– Asked about how they plan to come back to live events, he says that he expects margins to decline as expenses go up when they relaunch. Things will return to normal eventually but margins will likely get compressed in the interim. It’s emphasized again that they don’t know when that will be.

– Asked about the drop in operating expenses year to year, most of the expense savings came from production cost from producing the show at the Performance Center. It’s noted that they’re continuing to invest and that PC and international markets have slowed down but production continues in a smaller location.

– In regard to the purchase of EVOLVE and possible further asset buys, they say it was a very straight-forward and small investment. They aren’t actively looking for any more acquisitions but are always open.

– Asked about international expansion, it’s a key long-term opportunity and the India deal is a key example of that. At this point there’s no compelling reason to move forward until the COVID situation passes. But they see continued opportunity there.

– Asked if there are interim solutions to a live event situation, Vince says they’re constantly looking at options.

– Asked about the rise in costs when live events return and if they will drag on OIBDA, it is noted that additional precautions due to COVID will make it harder to recoup investments as normal and they want to go back as soon as they can but there will be drag on cost margins. Whether they expect to go back to 100% live events right away or an interim hybrid approach, they expect a phased approach that won’t be like pre-COVID at all initially.

And we’re done with Q&A. Riddick thanks everyone for listening, and the call is over.